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Is OPEC For Real This Time?

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By Kris Rosemann On September 28, the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to cut crude oil production levels for the first time since 2008. The cartel reportedly agreed to limit production of member nations to a range of 32.5-33 million barrels per day (bpd) while leaders met at the International Energy Forum in Algiers, Algeria. As would be expected following such news, the price of crude oil has bounced, bringing market sentiment surrounding energy-related stocks higher along with it. The proposed production could be a reduction of up to 750,000 bpd from OPEC production levels in the month of August, but how the group of nations will reach such a production cut has yet to … Read more

Dividends Not Safe as Energy Markets Swoon

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We’ve been cautious on the oil and gas markets (XLE, AMLP) for some time, and that includes our October move closer to market neutral on the sector, but we’re still underweight the group. We’ve been saying that crude oil prices are more likely to hit the $20 per barrel level than move significantly higher, and we maintain our view that they may never again return to the $100 per barrel, a level many have grown accustomed to. After all, why should they? Unfortunately, the fallout continues to punish traditional “buy and hold” investors who have been trained to ignore most “news” and may still be holding on the belief of the fallacy of mean reversion, something that we believe cannot … Read more

Transaction Alerts: Moving Closer to Market Neutral on Energy

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The Best Ideas Newsletter portfolio has generated significant outperformance in part from avoiding many of the landmines across the energy sector during the past many months. We’ve done equally well in our calls in the Dividend Growth Newsletter portfolio, and we’re very proud of raising the issue of the importance of looking at non-GAAP free cash flow across pipeline entities. We believe that such a measure is the best one to assess the timing of free cash flows as they are generated, an important consideration for investors of all types, and not properly addressed in measures of distributable cash flow or a company’s dividend or distribution. Why are we now inching ever so slightly back into energy? 1. The market … Read more

$45 Oil Prices!?!? There Is Never a Sense of Urgency When One Is Prepared

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Image Source: Macrotrends The bull market in energy (XLE) has lasted for the better part of a decade. Ever since the turn of the new century, energy perma-bulls have made the case that “black gold” (USO) should continue its ever-upward price advance thanks to ongoing demand from emerging and developing economies coupled with reduced inventories and areas of supply. We’re seeing this thesis challenged right at this moment. In deciding not to cut crude oil output in the face of oversupply and falling prices, the Organization of the Petroleum Exporting Countries (OPEC), for the lack of a better phrase, is now essentially engaged in a price war with producers in the US that are using breakthrough technology to produce oil … Read more

Third Quarter Earnings Season Pushes Forward

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The equity markets continue to propel higher despite what we would describe to be a mixed third-quarter earnings season. Let’s walk through a number of earnings reports from popular companies reporting so far this week. Some of them we include in the newsletter portfolios. Others we don’t. But all are worth keeping tabs on. Annaly (NLY) Annaly is a mortgage REIT (mREIT) with principal business objective to generate net income for distribution to shareholders. Being critical of the mREIT business is certainly unpopular, and we understand that many retirees generate vital income streams from such investments. Bulls and bears, however, both benefit from our independent voice, and we call out risks as we see them. Annaly and American Capital Agency … Read more

Beware of Groupthink: American Capital, Annaly and now Seadrill

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“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” – Mark Twain The investment research publishing business is a brutal one, and we know you know it. The very best of calls are the ones that go against the crowd and provide such a unique and fresh insight that readers have a difficult time grasping such a variant viewpoint. Once the call is published, the peanut gallery goes to work…and boy do they go to work. Biased and mostly uninformed commenters with stakes in the game do everything they can to try to discredit the author, from personal insults on the message boards to focusing on a minute part of the research … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Seadrill’s Cash Flow Weak, Financial Leverage Significant

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  Seadrill (SDRL), a leading offshore drilling company, posted lackluster third-quarter results Monday, and its dividend increase did little to impress investors. Consolidated revenue in the third quarter was flat on a sequential basis, while operating profit fell to $471 million from $507 million in the second quarter of this year. The company’s top-line and operating profit performance, however, was much better on a year-over-year basis, up 17.2% and 14%, respectively. Diluted earnings per share advanced to $0.60 from $0.40 in the year-ago period, slightly lower than expectations. EBITDA came in at $663 million during the quarter, flat on a sequential basis but up 15.5% on a year-over-year basis (also modestly below forecasts). Image Source: Seadrill  Seadrill’s net cash from … Read more

Seeking Balance: What’s Happening in the Crude Oil and Iron Ore Markets

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Image Source: Sollven Melindo Commodity prices are notoriously volatile as the global markets often struggle to maintain a sustainable balance of supply-demand. Let’s take a look at some recent developments and coming events that are impacting the prices of crude oil and iron ore. By Kris Rosemann We’re not rushing to add any commodity-based exposure at the moment. We have some of course – but we’re not looking to add more to the newsletter portfolios. For starters, the iron ore pricing market appears to be setting itself up for another period of pain, and we’re preaching serious levels of caution for those considering the space as iron-ore prices have already begun to descend from the peak of the puzzling early-2017 … Read more

Nelson: The 16 Most Important Steps To Understand The Stock Market

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A previous version of this article appeared on our website July 21, 2013. Refreshed and updated throughout, as of July 2018. By Brian Nelson, CFA After earning my MBA at the University of Chicago Booth School of Business and training stock and credit analysts from large organizations over the past decade or so, I have heard just about every question (though I admit I am still surprised by many things and remain a very humble student of the markets). I’ve also spent years perfecting the discounted cash flow process for large research organizations such as Morningstar and studied under one of the most famed aggressive growth investors of all time, Richard Driehaus. My knowledge runs the gamut from value through … Read more